Capital flows to remain strong: S&P

The Reserve Bank of India (RBI) may have to go for another round of tough measures to tackle the liquidity surge generated out the high flow of capital into the country.

According to experts the capital flow would continue towards emerging markets including India as the US Federal Reserve is expected to reduce its rates further by 50 basis points on October 31, which would facilitate huge arbitrage opportunities for the international investors as Indian key rates have much remained high.

David Wyss, chief economist Standard & Poors speaking to FE about the global rates scenario said, We expect US rates to come down another 50 basis points. European rates are likely to hold until Q1, but go up in Q2. Japan is on hold for now: Bank of England is likely to cut. Emerging markets that tie to the dollar will see slightly lower rates, but China will still raise rates. "I think we are already seeing money flowing to emerging markets instead of the US. Likely result is a bubble in emerging market investments, but damage to economies should be limited, he said. According to Wyss the panic about subprime is subsiding, but the real credit losses haven't been seen yet. Banks are in good shape to weather the storm.